Noble Corporation (NE) reported disappointing first quarter 2011 earnings due to lingering concerns related to the drilling ban in the Gulf of Mexico (GoM) last year. The company’s adjusted quarterly earnings came in at 15 cents per share, substantially below the year-earlier profit of $1.43 and our expectation of 18 cents per share.
Total revenue in the quarter plunged more than 31% to $578.9 million from $840.9 million in the comparable quarter last year. Reported revenue was above the Zacks Consensus Estimate of $559 million. Contract Drilling Services revenue was $542.6 million, down nearly 33% on an annualized basis.
Operating Highlights
Total operating income in the quarter plummeted more than 79% year over year to $86.3 million. Operating income from the Contract Drilling segment also plunged 80%.
Total rig utilization was 61% compared with 81% in the year-ago quarter. Overall average dayrate was $150,294 versus $187,214 in the year-ago quarter.
Average dayrate for semisubmersible rigs were $277,859, compared with $416,572 in the year-earlier quarter. Average capacity utilization was 69% versus 93% in the year-ago period. Drillships experienced an average dayrate of $301,647 versus $222,306 in the year-ago quarter, while average capacity utilization was 70% versus 92% in the comparable quarter last year.
Average dayrate for the company’s jackups was $80,866 compared with $116,498 in the year-ago quarter. Average capacity utilization decreased to 62% from the year-ago level of 81%.
Financials
At the end of the first quarter, the company had cash balance of $508.7 million and long-term debt of $3,167.6 million with debt-to-capitalization ratio of 29.2% (versus 27.5% in the preceding quarter). During the quarter, Noble invested $614 million in capital projects.
Our Take
Following the suspension of the moratorium in the U.S. GoM, companies in the offshore oil industry are trying to enhance their deepwater assignments. Additionally, offshore drillers are experiencing improved market conditions with an uptrend in oil prices and better bidding activity. Likewise, as a contract drilling company, Noble is also making constant efforts to take advantage of the scenario by expanding and upgrading its ultra-deepwater rig fleet.
Moreover, Noble is also expected to benefit from improvements in international jackup markets, such as Mexico, the North Sea, Southeast Asia and the Middle East. Hence, we believe the upturn in the international jackup market along with permission in the GoM will aid the company’s growth ahead.
We see long-term earnings and cash flow visibility with the company’s solid backlog position, which will be enhanced by the recent agreement for newbuilds. The company’s backlog as of March 31, 2011, stood at $13.1 billion.
However, Noble’s old and less efficient fleet in a cutthroat environment could prove detrimental. Again, tough competition from its larger peers such as Transocean Ltd. (RIG) and Diamond Offshore Drilling Inc. (DO) is also a concern.
We expect the stock to perform in line with the broader market and maintain our long-term Neutral recommendation. The company also holds a Zacks #3 Rank, which is equivalent to a short-term Hold rating.
DIAMOND OFFSHOR (DO): Free Stock Analysis Report
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